The Dollar took an aggressive stance on Wednesday as investors await bullish comments from the FED and White House while troubled Kiwi was rescued by a strong domestic employment data.

The basket of major currencies fell against the greenback, however, last week’s high at 95.00 seems to have to be conquered again with the help of Federal Reserve.

Nevertheless the FED’s November meeting is of little interest to investors as the position of regulator for the December meeting is pretty clear, and there is no point in talking about distant prospects, given that Yellen’s term is coming to an end in February.

A much more important event will be the announcement of a new head of the Fed on Thursday, where the views converge on Yellen’s colleague Jerome Powell. The market estimates his chances at 85%. Powell is a famous follower of gradualism, so his appointment will probably disappoint the markets and will deprive the Dollar of some support. For the US stock markets, amid the economic recovery and the tax reform, the prospect of a sluggish FED is likely to revive interest in staging new records.

Later on Wednesday, there will be news on tax reform, in particular, the plans of Treasury for auctions to finance the deficit.

Despite a large number of seemingly bullish events for the Dollar, I would recommend refraining from buying it until the uncertainty is eliminated. All data indicate a strong report on employment in the US on Friday, but all this should be seen in the context of accelerating growth after natural disasters. The long-term dynamics of the Dollar will be determined by the tax reform and the appointment of the head of the Federal Reserve.

In favour of strong NFP report, there is an increase in consumer confidence and spending, which also prepares the favorable ground for the fourth quarter GDP performance. The early start of the heating season and the seasonal increase in energy prices will create additional inflationary pressures on the economy, which, together with rising oil prices, will have a multiplier effect.

New Zealand Dollar

Economic recovery also reached New Zealand, where unemployment fell to 4.6%, which triggered a wave of long positions for NZD and NZD/USD growth of 0.9%. Suddenly, a steep exchange rate rise after robust labour data was a “relief” rally after the new government announced the isolationist measures – preventing foreign investment and migration. Nevertheless, the policy will take its toll and we can expect further weakening of the New Zealand Dollar.

British Pound

The British pound jumped to the high of October on Tuesday, after the European official in charge of Brexit talks, said he was ready to accelerate negotiations on the country’s exit from the bloc, thus significantly boosting the spirit of investors who still hope for a pound gain. Theresa May’s spokeswoman also reported on the hiring of thousands of customs officers at the new borders with the European Union – which also signalled the imminent announcement of the final exit conditions.

On Thursday, the Bank of England will hold a meeting, which is likely to announce an increase in the interest rate by 0.25% – for the first time in 10 years. The head of the bank, Mark Carney, took advantage of this monetary tool when he announced the need to rate hike at the previous meeting (which caused the pound to rise to 1.36), so in search of arguments for a strong currency again, he needs to show the readiness of the bank to any consequences of Brexit. With the global economic recovery, rising Oil prices, there is a chance that he will have the courage to be more aggressive than expected.

The Oil market continues to master successively new peaks, rising on Monday to the highest level since July 2015. Oversupply is steadily declining while Saudi Arabia’s readiness for changes looks even more reliable against the backdrop of anti-corruption detentions in the higher echelons of power in the kingdom.

Prince Mohammed Bin Salman made a purge in the ranks of government arresting royal officials, ministers and investors. The enemies of the prince were even the billionaire Alwaleed bin Talal and the head of the National Guard Prince Miteb bin Abdullah. The struggle inside the board worsened after the announcement of the plans of the kingdom to hold the IPO of the largest oil company Saudi Aramco next year, just in the phase of growing oil market, which will offer investors the stake for a higher price.

Shale output in the US shows signs of further decline, as the report of Baker Hughes on Friday showed that the number of drilling rigs decreased by 8 to 729. This was the sharpest decline since May 2016.

The fall in drilling activity occurs together with the action of the OPEC + oil pact, which convinces the mutual interest of shale companies and the cartel to restore the balance of supply and demand. The pact expires in March 2018, but the rhetoric of Saudi Arabia and Russian officials have been repeatedly favoured to extend the agreement by the end of next year.’

U.S. Dollar.

The Dollar exchange rate has slightly changed on Monday, as investors “squeezed” long positions last week against the backdrop of an unimpressive NFP report. The likelihood of a “soft” version of the tax reform is also growing, where the introduction of tax incentives will be carried out in stages, rather than at a time. The rise during the Asian session was replaced by relative indifference with the beginning of the London trading.

The Dollar drop is likely to limited because of the uncertainty regarding the tax plan, but the bond market seems to be giving up. The yield on 10-year US bonds shows a negative trend on Monday, after a significant decline last week. The net short position on the Dollar fell to a minimum of four months from $18 billion at the end of September to $3 billion in the last week.

The dynamics of EM currencies, however, suggests strengthening of the Dollar. The Russian ruble continued its decline on Monday amid the carry trade route, a period of payment of debts denominated in US Dollars and a growing demand for foreign currency on the part of the nation. The pair USD/RUB soared to the level of 59.00, for the first time since the end of August. The signal of the currencies weakening is attractive for carrying trade testifies about fears of shrinking differential of interest rates or strengthening of the Dollar.

British Pound.

Investors are actively buying back the Pound from the key support level at 1.30, to which it arrived on Thursday after the meeting of the Bank of England. The Pound is projected to trade in red further, falling below 1.30 due to the instability of the Conservative Party and the uncertainty surrounding the Brexit negotiations.

The expected increase in the rate by the Bank of England did nothing for the Pound, as the head of the bank Mark Carney stressed that the main risk for the economy remains the deal with the European Union on maintaining access to the single trading market. If the country fails to reach an agreement, the pace of economy pickup may significantly slow down, as import duties can plunge a large number of enterprises into losses. The projected pace of rate normalization fell to two increases in the next three years, which caused a sharp change in expectations for the Pound in the direction of the negative.

The US Senate released its soft version of the tax-cut plan on Thursday featuring the two implementation stages. Firms may need to wait for a tax break till 2019, which in turn does not show much of an anticipated stimulus boost, but it is instead less risky for the government budget.

The budget committee has already approved a reform option and next week the House of Representatives will vote, where it will be expected to see Senate’s unjustified caution being pointed out. The reform development can lock into a cycle where the initiatives of the Upper and Lower Chambers will be reviewed several times until they work out common decision. The more differences between the reform options, the longer markets will be kept in suspense.

Investors in the fixed income market seem to expect a more aggressive version of the reform as they hastened to sell bonds after Senate update. The yield of 10-year US sovereign debt jumped from 2,320% to 2,372% on Thursday and keeps rising on Friday. The US Dollar holds moderate declines, preferring to save optimism for the next week. This week turned out to be the most unsuccessful for US currency during the last month as investors were disappointed with the news about a potential delay in tax breaks for firms.

It is noteworthy that both bills will cost the government $1.5 trillion for 10 years, so in terms of a number of expenditures they are identical and can not cause any discord. Also, both plans want to tax $ 2.6 trillion of US profits abroad, with the Senate offering a tax rate of 12% for cash and liquid assets, and the House of Representatives – 14%. From this point of view, the version of Senate looks more attractive.

Morgan Stanley called the slip of tax plan as the main reason for increasing short positions on Dollar, as against the backdrop of a global recovery the US economy needs to warrant faster growth outlook to remain attractive to investors. If this is not shown, the outflow of capital will begin in search of greater yield in foreign markets.

The uncertainty that will drag on next week will probably take the Dollar even lower before it can move into growth. Medium-term Dollar selloff looks quite reasonable given the current development of the tax reform situation.

Yen declines after a small reminder from the Bank of Japan. The regulators will follow the example of their colleagues and take measures to stop inflating its balance sheet this year.

The yen buyers sharply expanded on aggressive policy expectations from the Japanese Central Bank which cut asset purchases by 5%: USD/JPY slid 0.3%, EUR/JPY suffered moderate losses against the background of an intensifying selloff of the European currency.

Euro

Data on unemployment could not inspire bulls to buy more Euro: the key figure fell to 8.7%, justifying the market forecast, and the share of unemployed among youth was 18.2%. The immunity of the European currency to labour market data is explained by the absence of a visible effect on inflation, which on the contrary fell from 1.5% to 1.4% last month. Nevertheless, economic growth in the Euro area is felt through the growth of export orders, i. external demand, as well as improving leading indicators, such as economic sentiment in the corporate environment.

EUR/USD has developed a downward trend, the pair is approaching the level of 1.19 after it failed to break the key psychological mark at the beginning of the new year, which could become a hindrance for further growth. In addition, active selloff can be linked to the upcoming ECB meeting, where Mario Draghi can again refer to the need to maintain soft credit conditions until clear signals are issued on the inflation front.

Greenback

Dollar won almost againts all major opponents on Tuesday, after the release of an important economic indicator on Monday – the volume of issued consumer loans. Credit indicators are significant data on which, at the moment of recovery, you can judge consumer confidence, as well as the prospects for inflation. The key indicator rose to $27.95 billion in November, exceeding the previous month’s figure by $ 6 billion. In percentage terms, the growth is far from impressive, but one can expect stronger inflation data than anticipated.

The Dollar Index reached the level of 92.30 during today’s session. Nevertheless, the technical picture indicates a short-term bullish correction after falling to the level of 91.50. The previous time, the Dollar reached similar values in September 2017.

Will Draghi´s speech kill the momentum?

Acknowledging the economic success of the Eurozone while holding back the rally of the common currency – a problem that is increasingly becoming unsolvable for the ECB. Investors are waiting for confirmation of their bullish expectations from Draghi, and they are bracing for the regulator’s meeting quite confidently – the pair EUR/USD resolutely surpassed the level of 1.24 on Thursday. It seems that the market forces the ECB to disclose details of the restraining measures and in order to not cause volatility in the markets, Mario Draghi will probably choose neutral rhetoric, which, if not reduce the Euro, will at least place bar for further growth.

The weak Euro is the only simple yet effective tool for boosting inflation, which is currently at ECB’s disposal. Capital investments (it is useful to recall high economic sentiment in the Euro area) and the increase in export orders are the only solid causes for the output rebound, while consumption remains depressed. Production and consumer inflation are a good reflection of this situation.

It is obvious that the strengthening of Euro will slash profits of European companies in Euros while also hitting the competitiveness of European goods on the international market. This can slow the recovery of GDP, worsening economic sentiment in the business environment, and also jeopardize the large-scale incentive program conducted in the post-crisis years. Until the consumer inflation will not give clear signals to the growth, weak Euro is critically important for the growth of the Eurozone economy, therefore, the ECB will try its best to prevent the buildup of long positions in the national currency. In the relative pace of recovery, some countries in the Eurozone, for example, Germany, are ahead of the US, so capital flows will seek the Old World, reinforced by speculative rates on the growth of the Euro. In this situation, Draghi just has to take a wait-and-see attitude, repeating that the amount of asset buying will remain unchanged while using verbal interventions, indicating that strengthening of the Euro may impede economic growth. If Draghi does not say so, investors will not give up their plans to move the capital to the European market.

However, in general, until recently, consumer inflation has been quite indifferent to the strengthening of the European currency. However, its resilience relative to the exchange rate factor is applicable only to the leading countries of the bloc, such as Germany, while this may suppress growth in the economies of weaker participants. The need to take care of the stability of growth in the entire block is the reason why the ECB looks as cautious as possible in its position.